The rapid rise of LLMs is reshaping how users search for information, challenging $Alphabet(GOOGL)$ 's search monopoly -- here’s what I’m watching for in today’s earnings 🧐
Integrating AI Across Alphabet's Ecosystem
AI needs to be at the core of Alphabet’s growth strategy, pushing its evolution beyond traditional search and establishing it as a broader AI leader -- the company is rapidly developing AI-driven products to enhance user experience and boost engagement:
• Bard AI: Bard, Google’s own LLM, is designed to deliver deep, conversational experiences across Google Search, YouTube, and Gmail. While Bard competes directly with models like OpenAI’s GPT series, its integration into existing platforms aims to enhance user stickiness, helping Google retain engagement even as AI shifts user behavior. Early adoption rates suggest Bard is gaining traction -- which is critical as Google aims to redefine its core search experience.
• Search Generative Experience (SGE): AI is being embedded into Google’s search results through the new Search Generative Experience, which offers more conversational and context-aware answers. By making search more intuitive, SGE aims to strengthen Google’s competitive moat, potentially driving higher ad-click rates and boosting search monetization. SGE’s success will be crucial to maintaining Alphabet’s dominance as LLMs reshape how users interact with search engines.
• Google Cloud AI: Beyond consumer-facing AI, Google Cloud AI provides tools like Vertex AI, which help enterprises build and deploy their own AI models. This segment is already contributing 26% of Alphabet’s total revenue growth, demonstrating the strong demand for Google’s AI infrastructure.
AI isn’t just reshaping search -- it’s redefining ad targeting, creative optimization, and campaign performance. Google’s AI-powered ad solutions can improve targeting accuracy, driving higher returns for advertisers. As a result, even as search evolves, AI could enhance ad efficiency and sustain Alphabet’s core revenue stream.
Q3 Earning Insights from Earnings Hub
The market expects revenue of $86.2 billion, reflecting 12% YoY growth, with EPS projected at $1.85, marking a 19% YoY increase despite a slight sequential drop from Q2’s $1.89 EPS. Alphabet’s current P/E ratio of 24x is near the lower end of its historical range -- making it an attractive entry point.
Several growth drivers could positively impact Q3 results:
• Google Cloud AI Partnerships: Alphabet's recent cloud partnerships signal growth potential in industrial AI. Notable collaborations, such as those with $HON and Telenor Group, highlight the push into AI-driven digital transformation. Google Cloud’s focus on generative AI tools, like Vertex AI, positions it to capture a significant share of the growing enterprise AI market -- which is expected to compound at 46% annually through 2032.
• YouTube’s E-Commerce Expansion: YouTube’s move into e-commerce through partnerships with platforms like $SE Shopee shows promise. This expansion into markets like Thailand and Vietnam, with a combined GDP of over $900 billion, offers significant revenue potential. While ad revenue growth has been slower than competitors, a growing YouTube Premium subscriber base (now over 100 million) provides a stable revenue stream that could offset short-term ad volatility.
• Waymo's Robotaxi Growth: Waymo's recent progress in the robotaxi space is a bullish indicator. It now completes over 100,000 paid trips weekly, doubling from earlier in the year. Waymo’s growth trajectory suggests potential to reach 1 million weekly trips by 2025, contributing over $1 billion in annualized revenue by the end of next year.
Final Thoughts
Alphabet’s Q3 earnings will offer crucial insights into its AI monetization strategies and the stability of its core search and advertising businesses, especially as competition from LLMs intensifies. As LLMs reshape search and digital experiences, Alphabet is aggressively integrating AI across its core products and new growth areas. By driving innovations in search, advertising, cloud services, and productivity tools -- Alphabet aims to transform potential disruption into growth opportunities.
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